Ratio of Debt-to-Income
Lenders use a ratio called "debt to income" to decide your maximum monthly payment after you've paid your other monthly loans.
About the qualifying ratio
Typically, conventional loans require a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
The first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including hazard insurance, HOA dues, PMI - everything.
The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes payments on credit cards, car payments, child support, etcetera.
Some example data:
28/36 (Conventional)
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you want to run your own numbers, please use this Mortgage Loan Pre-Qualification Calculator.
Just Guidelines
Don't forget these are just guidelines. We will be happy to pre-qualify you to determine how large a mortgage you can afford.
BeneGroup, Inc. can answer questions about these ratios and many others. Call us at 4083956018.